STAND. COM. REP. NO. 1564

                                   Honolulu, Hawaii
                                                     , 1999

                                   RE:  H.B. No. 375
                                        H.D. 1
                                        S.D. 1




Honorable Norman Mizuguchi
President of the Senate
Twentieth State Legislature
Regular Session of 1999
State of Hawaii

Sir:

     Your Committee on Ways and Means, to which was referred H.B.
No. 375, H.D. 1, entitled: 

     "A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

     The purpose of this measure is to exempt exported services
from the GET and to impose the use tax on imported services.

     Prior to the hearing, your Committee circulated a proposed
Senate Draft.  Testimony in general support of the proposed
Senate Draft was submitted by the Department of Taxation, and
testimony in support of the provisions concerning reimbursement
of the GET to the counties was submitted by the County of Maui,
Chair of the County Council of the City and County of Honolulu,
the City and County of Honolulu, and the Hawaii Hotel
Association.  The Association also supported the hotel
construction and remodeling tax credit.  The Department of
Business, Economic Development, and Tourism submitted testimony
in support of the hotel construction and remodeling tax credit
and the tax incentives for call centers and made comments on the
technology tax credit.  The Department of Budget and Finance
submitted testimony in opposition to the provisions on the
reimbursement of the GET to the counties and the income tax
check-off for the children's special fund.


 
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     Your Committee has amended House Bill 232, H.D. 1, by
deleting its contents and substituting the proposed Senate Draft.
As amended, this measure contains the following:

     (1)  A hotel construction and remodeling income tax credit
          for the period January 1, 1999, to December 31, 2001.
          This provision is similar to Senate Bill No. 1325;

     (2)  Provisions for the reimbursement to the counties for
          the general excise tax passed on to them by taxpayers.
          The reimbursement may be claimed starting July 1, 1999,
          by submitting claims to the director of finance.  These
          provisions are similar to Senate Bill No. 17, S.D. 1;

     (3)  Provisions for exempting telecommunications furnished
          to call centers from the general excise tax and the
          public service company tax.  Call centers are also
          exempted from the general excise tax for income
          received for customer service and support.  These
          provisions are similar to Senate Bill No. 744, S.D. 1;

     (4)  Provisions for the exemption of certain health care
          activities.  The provisions provide definitions and
          exempt from the general excise tax, income received
          from a health care plan or provider where all or part
          of the income is paid to another health care provider
          or plan and certain income received by a health plan
          provider in a joint venture that is paid to a health
          care provider.  These provisions are similar to Senate
          Bill No. 44, S.D. 1;

     (5)  A provision that adopts federal Internal Revenue Code
          section 911 that exempts from income taxation, income
          received by citizens and residents living abroad.  This
          provision is similar to Senate Bill No. 32;

     (6)  A provision exempting from the general excise tax the
          income of attorney's-in-fact of reciprocal insurers
          from their business in that capacity.  This provision
          is similar to Senate Bill No. 364, S.D. 1;

     (7)  Provisions establishing an income tax check-off for the
          Hawaii human services children's special fund also
          established in the bill.  The check-off will be a
          reduction of any tax refund and not an addition to tax
          liability, and the moneys in the special fund will be
          used for children's programs of the department of human
          services;


 
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     (8)  Provisions that establish a financial institution
          technology tax credit.  Financial institutions, if
          interested, will be allowed a tax credit for the
          investment of venture capital in technology companies.
          The high technology development corporation are to
          determine the companies that are available, notify the
          financial institutions of the availability, and certify
          the credit for the financial institutions.

     Your Committee notes that further consideration of including
time shares in the hotel construction and remodeling tax credit
may be warranted if the appropriate definitions and categories
can be identified. Your Committee believes that the mixture of
tax incentives in this measure will encourage various sectors of
the State's economy.

     As affirmed by the record of votes of the members of your
Committee on Ways and Means that is attached to this report, your
Committee is in accord with the intent and purpose of H.B.
No. 375, H.D. 1, as amended herein, and recommends that it pass
Second Reading in the form attached hereto as H.B. No. 375,
H.D. 1, S.D. 1, and be placed on the calendar for Third Reading.

                                 Respectfully submitted on behalf
                                 of the members of the Committee
                                 on Ways and Means,



                                 ________________________________
                                 CAROL FUKUNAGA, Co-Chair



                                 ________________________________
                                 ANDREW LEVIN, Co-Chair

 
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